Ethical Pension Funds
Can you choose ethical investments in workplace pensions? Understand ESG and responsible investment options in auto-enrolment schemes.
Last updated: 30 January 2025
Ethical investment options let you align your pension with your values.
What Are Ethical Funds
Definition
| Element | Detail |
|---|---|
| Also called | ESG funds |
| Environmental | Considerations |
| Social | Considerations |
| Governance | Considerations |
Different Approaches
| Type | Method |
|---|---|
| Exclusion | Avoid certain sectors |
| Positive selection | Choose good performers |
| Engagement | Influence companies |
| Impact | Target specific outcomes |
ESG Explained
Environmental
| Factor | Examples |
|---|---|
| Climate change | Carbon emissions |
| Pollution | Air, water, land |
| Resources | Energy, water use |
| Biodiversity | Nature impact |
Social
| Factor | Examples |
|---|---|
| Labour rights | Fair treatment |
| Human rights | Supply chain |
| Community | Local impact |
| Diversity | Inclusion |
Governance
| Factor | Examples |
|---|---|
| Board structure | Independence |
| Executive pay | Reasonableness |
| Transparency | Disclosure |
| Ethics | Business conduct |
Common Exclusions
Typical Sectors Avoided
| Sector | Why Excluded |
|---|---|
| Tobacco | Health harm |
| Weapons | Controversial arms |
| Fossil fuels | Climate impact |
| Gambling | Social harm |
Other Exclusions
| Some Funds Also | Exclude |
|---|---|
| Nuclear | Power |
| Animal testing | Cosmetics |
| Alcohol | Production |
| Adult entertainment | Industry |
Availability in Workplace Pensions
Most Schemes Offer
| Position | Detail |
|---|---|
| Ethical option | Usually available |
| Called various | Names |
| Check scheme | For options |
| May be default | Increasingly |
How to Find
| Check | Where |
|---|---|
| Online portal | Fund choices |
| Provider website | Investment options |
| Scheme documents | Fund information |
| HR | Can advise |
Switching to Ethical
Process
| Step | Action |
|---|---|
| Log in | To pension account |
| Find | Investment options |
| Select | Ethical fund |
| Confirm | Switch |
Timing
| Element | Detail |
|---|---|
| Usually free | To switch |
| Takes days | To process |
| Future contributions | Go to new fund |
| Existing pot | Can be switched |
Performance
Historical Returns
| Position | Detail |
|---|---|
| Often similar | To mainstream |
| Sometimes better | Recent years |
| Depends on | Market conditions |
| No guarantee | Either way |
Why Performance Can Be Good
| Reason | Detail |
|---|---|
| Avoid risky sectors | Declining industries |
| Quality companies | Often score well |
| Growing demand | For sustainable |
| Future-focused | Investment |
Charges
Typical Costs
| Position | Detail |
|---|---|
| Slightly higher | Sometimes |
| Similar | Often |
| Check specific | Fund charges |
| Compare | With default |
Additional Costs
| Why Higher | Sometimes |
|---|---|
| Extra screening | Research cost |
| Specialist analysis | ESG data |
| Engagement work | Company dialogue |
Default Funds Going Green
Trend
| Position | Detail |
|---|---|
| Many defaults | Now ESG integrated |
| Not fully ethical | But considering ESG |
| Mainstream | Adoption |
| Member demand | Driving change |
What This Means
| Effect | Detail |
|---|---|
| Default improves | For everyone |
| Less to opt out | Of problems |
| Still options | For stricter approach |
NEST Ethical Fund
Option Available
| Feature | Detail |
|---|---|
| NEST Ethical Fund | Available |
| Alternative to | Default |
| No extra charge | Same fees |
| Member choice | To switch |
What It Does
| Approach | Detail |
|---|---|
| Excludes | Various sectors |
| ESG screening | Applied |
| Diversified | Portfolio |
Sharia-Compliant Funds
Also Available
| Feature | Detail |
|---|---|
| Islamic investment | Principles |
| No interest | Based investments |
| Screening | For compliance |
| Growing | Availability |
NEST Sharia Fund
| Option | Detail |
|---|---|
| Available | In NEST |
| For those | Requiring it |
| Religious | Requirement |
Making the Choice
Consider
| Factor | Think About |
|---|---|
| Values | What matters to you |
| Exclusions | What should be avoided |
| Performance | Historical returns |
| Charges | Cost difference |
Questions to Ask
| Question | Consider |
|---|---|
| What's excluded? | Specific sectors |
| What's the approach? | Exclusion vs engagement |
| What are charges? | Compare |
| What's performance? | Historical data |
Employer Considerations
Scheme Selection
| Can | Consider |
|---|---|
| Choose scheme | With ESG options |
| Default to | ESG fund |
| Offer choice | To employees |
| Communicate | Options |
Member Demand
| Trend | Detail |
|---|---|
| Growing interest | In ESG |
| Younger workers | Especially |
| Retention factor | Employee benefit |
| Values alignment | With company |
Impact of Your Choice
Individual Effect
| Your Pot | Impact |
|---|---|
| Relatively small | On its own |
| Part of collective | Movement |
| Sends signal | To companies |
| Growing trend | Matters |
Collective Impact
| Together | Effect |
|---|---|
| Trillions | In pensions |
| Company behaviour | Can change |
| Cost of capital | Affected |
| Real world | Impact |
Summary
Key Points
| Element | Detail |
|---|---|
| Options available | In most schemes |
| ESG approach | Varies by fund |
| Performance | Often comparable |
| Check charges | May differ slightly |
Actions
| Step | What to Do |
|---|---|
| Review options | In your scheme |
| Understand approach | What fund does |
| Compare charges | Cost difference |
| Switch if wanted | Usually easy |
Related answers
Choosing a Pension Provider
How do you choose a workplace pension provider? Compare options for auto-enrolment including NEST and other providers.
Pension Scheme Charges
What charges apply to workplace pensions? Understand annual management charges and how they affect pension pots.
Pension Default Funds
What is a default pension fund? Understand where your auto-enrolment contributions go and how default investments work.
Frequently Asked Questions
- Can I choose ethical investments in my workplace pension?
- Most workplace pension schemes now offer ethical or ESG (Environmental, Social, Governance) fund options. You can usually switch from the default fund to an ethical alternative through your pension provider's website or app. Check your scheme for available options.
- What do ethical pension funds avoid?
- Ethical funds typically avoid or reduce exposure to tobacco, weapons, fossil fuels, gambling, and companies with poor labour practices. Some exclude nuclear, animal testing, or alcohol. Different funds have different criteria, so check what each fund excludes.
- Are ethical pension funds more expensive?
- Some ethical funds charge slightly higher fees due to additional screening and analysis. However, many schemes offer ethical options at similar charges to their default fund. The charge cap of 0.75% still applies if it's the scheme's default fund.